ON Semi: UBS Ups to Buy; Ready to Improve Sanyo Biz

By Tiernan Ray

UBS Securities’s Parag Agarwal today raised his rating on shares of On Semiconductor (ONNN) to Buy from Neutral, and raised his price target to $11 from $7, writing that the company is poised to reap the benefit of its purchase of the semiconductor operations of Sanyo (5958JP), which the company completed a year ago.

After disruption from tsunami early last year and floods in Thailand towards the end of last year, ONNN is finally set to begin the consolidation process for Sanyo Semiconductor. The company is closing two Sanyo fabs (Gunma & Gifu) in Japan and moving production to its network and to the third Sanyo fab at Niigata. These fab closures are expected to take place in mid 2012, with the full impact of upside in 4Q12. In addition, ONNN is closing its fab at Aizu, which should result in savings of about $8m/quarter.

Although Sanyo’s gross profit margin stands at just 15% or so now, well below the roughly 29% gross margin for On Semiconductor, Agarwal sees ON succeeding in bringing that level way, way up, to about 28%, by the end of this year, through a variety of cost-saving consolidation measures.

About Tech Trader Daily

Tech Trader Daily is a blog on technology investing written by Barron’s veteran Tiernan Ray. The blog provides news, analysis and original reporting on events important to investors in software, hardware, the Internet, telecommunications and related fields. Comments and tips can be sent to: techtraderdaily@barrons.com.